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No Job, No Home:

Unemployment and Foreclosures on the Rise Again

by Adam Price |
August 31, 2006
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San Jose, CA - The official U.S. unemployment rate rose from 4.6% to 4.8% in July as the economic growth slowed over the past months, creating fewer jobs. The number of long-term (15 weeks or more) jobless people rose, as unemployed workers had a harder time finding new jobs. A better measure of unemployment, which includes workers who have to take part-time jobs because they can’t get full-time work, and those who temporarily gave up looking because they haven’t been able to find a job, also rose in July to 7.8%.

The biggest job losses in July were among manufacturing workers (down 15,000) and home construction workers (down 9,000), two sectors that are leading the economic slowdown. Most of the loss in manufacturing jobs was in the car and truck sector, as car and truck sales have fallen and companies have cut production this year. The loss in construction jobs, which has been one of the strongest areas of growth over the past few years, shows how the slowdown in housing sales has started to affect the job market. Another sign of the housing slowdown was the loss of finance jobs in real estate, as fewer people buy a home or refinance their mortgage.

While workers’ wages are rising at a faster rate, they have not kept up with the cost of living. Wages have gone up 3.8% over the last year, but consumer prices have gone up 4.3%. While the official unemployment rate understates real joblessness, the official measure of inflation, the Consumer Price Index, understates the recent increase in the cost of living by not including home mortgage payments. The interest rate increases over the last two years by the Federal Reserve, have increased mortgage payments for homebuyers with adjustable rate mortgages and/or home equity lines of credit.

As a result of higher interest rates, home sales have fallen and home price increases have slowed or even started to drop in some communities. When the housing market was booming, homebuyers who fell behind on their payments could sell their home as a last resort to pay off their mortgage. But more and more homeowners are unable to do this, so banks and mortgage companies are taking houses from borrowers who can’t keep up with rising payments. These foreclosures have jumped, in some areas doubling over the past year. As the banks try to sell these homes, even more houses are ending up on the market, putting more downward pressure on prices. Rising unemployment will cause even more homebuyers to fall behind on their mortgages, further increasing the number of foreclosures.

Unemployment and foreclosures are hitting oppressed nationality communities the hardest. The official unemployment rate for African Americans, already more than twice the jobless rate of whites, jumped by a whole one-half percentage point in July, from 9.0% to 9.5%. A recent study also showed that African American and Latino home buyers were much more likely to get mortgages that put them most at risk of losing their homes in times of rising interest rates and falling prices.

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